We all work very hard to earn a living in this country. After all each of us have numerous responsibilities that we need to discharge. Taking care of our daily expenses, food, clothing, housing, education, etc. But there is one more thing that we seem to be working hard for. This is to bailout the government owned enterprises.

That's right. This is being done by using our tax money to bailout those companies that are going under thanks to the government's own ridiculous policies. The way this works is that first the government will come up with policies and regulations to milk the cash out of its rich companies. Over time these eventually lead the company to the point of bankruptcy. The government will then create a hue and cry to make it look like the entire country would be in doldrums if the PSU goes under and is not bailed out. This way it lays a foundation to ensure that a huge corpus of cash is allocated to bail the company out. Now naturally the huge corpus of cash comes out of the cash that has been collected through taxes. That is your and our hard earned money.

This is exactly what has happened in the case of Air India. The government has decided to bail out the ailing national carrier with an infusion of Rs 300 bn through equity and cash. It has also approved the restructuring of the Rs 180 bn of the company's debt. The company has been going through bad times due to increasing operating costs which it was unable to pass through due to increasing competition in the sector. And when the company was already in a bad shape, the aviation minister decided to go ahead and order expensive aircrafts, all funded by debt naturally. The additional interest burden sent the company deep in red. But obviously it had nothing to worry about. The government has decided to rescue it with our tax money

And this has just paved the path for more bailouts. There are several PSUs that are bleeding. The list is long and illustrious. For example, the national wireless companies Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telephone Nigam Ltd. (MTNL) have been in the red for quite some time.

But is this what we pay tax for? The answer is no. The money collected through tax is meant to fund public services for the benefit of the citizens of the country. This includes roads, water works, electric utilities, health services, etc. Not to bailout ailing companies.

If you do then raise your voice by participating in our Ban Bailouts campaign

01:30

Chart of the day

Petroleum products are a perennial headache for the government. Some times because of the price swings in international crude oil prices. Some times because of rise in domestic consumption of these finite resources. This is because petroleum products gulp down a significant chunk of subsidies. So their prices and consumption have a strong binding on government finances. The latest news is that diesel consumption for the financial year 2011-12 (FY12) is estimated to have grown by a whopping 11.9% year-on-year (YoY). This is likely to have caused growth in consumption of petroleum products by 4.9% YoY. It is noteworthy that this is the highest growth in the last four years. High subsidy makes diesel cheaper in comparison to its competing fuels. Between FY07 and FY12, the share of diesel in the petroleum products basket has grown from 35.5% to more than 43%. It goes without saying that such growth in consumption is giving jitters to the government.

Source: Business Standard
* For the period from April to February

01:50

It's a good thing that as researchers, we don't worry too much about month-on-month or ever quarter-on-quarter fluctuation in production numbers. We are more concerned about what the long term trend looks like. But for those who do, the frequent revisions put out by the Government must be getting really irksome. Take the case of January IIP (Index of Industrial Production) numbers which have now been revised down to 1.1% from 6.8% initially. The culprit this time around was sugar production which was over reported by a whopping 131%. Well, we can understand a slippage of the order of few percentage points. But it is beyond us as to how a figure as large as 131% went unnoticed. Clearly, the data collection agency needs to put some serious thought into how it collects and reports its figures. Frequent revisions are not only denting its reputation but is also causing a lot of damage to firms and decision makers who put a lot of money at stake based on the former's numbers.

02:25

Sky rocketing property prices and high interest rates lowered the sales volumes in the property market. Stretched balance sheets of developers and slowdown in volumes signaled that prices were bound to correct. But they hardly have. That's because the developers have been able to meet their cash flow requirements through debt restructuring. They know that the current scenario is a temporary phenomenon. Once the interest rate environment improves, the demand would bounce back soon. They are also confident that the current market has the potential to absorb higher prices. And that is also reflected in the absorption rates. Absorption rate is the rate at which homes are being absorbed (sold) in the market in a given period. Say for example 100 homes are available to be sold in a given month. And the buyers buy 10 homes per month. This gives an absorption rate of 10% (10/100) or an absorption period of 10 months (100/10). While the current absorption rate in top cities gives comfort to the builders, the moot question is for how long? Higher prices will ultimately impact absorption. This suggests that the property market is headed for hard landing. May be the inevitable is just procrastinated for a while.

03:05

Days of under-promising and over-delivering for the IT (Information Technology) bellwether Infosys Ltd seem to be over. At least this is what the company's financial performance during the past several quarters suggests. The IT major kick-started the result season for the Indian IT industry on a very disappointing note. The company reported a 4.8% quarter-on-quarter (QoQ) decline in its sales and a 2.4% QoQ decline in its net profits. The volumes in the consolidated IT services business declined by 1.5% sequentially. Considering the uncertainty in the global demand environment and the management's cautious guidance for the quarter, the result is not that surprising. However, what is more worrisome for the whole sector is that the management continues its cautious outlook with regards to the future. It has given a lower guidance for the financial year ending March 2013 (FY13). In US dollar terms, the company expects just 8%-10% year-on-year growth in revenues for FY13.

The guidance is lower than the growth projections estimated by most of the industry experts. Does this indicate a painful year ahead for the IT sector? We do not believe so. Companies such as Tata Consultancy Services (TCS) and HCL Technologies have been growing well in the recent past. The managements of these companies have been optimistic about the healthy deal pipeline in the sector. If the global economic environment does not deteriorate further, we can expect a better performance from other large players in the ensuing quarters.

03:40

If you are shocked by the government's inaccuracy in reporting industrial growth (IIP) numbers, here is more. Neighboring growth engine China too has reported slowest growth rate in 3 years. Now that may not really be a consolation for us. But that the easy liquidity is having no impact on China's growth prospects either is noteworthy. The government and corporate are pressurizing the Reserve Bank of India (RBI) to ease liquidity. Lower interest rates are expected to make bank credit more accessible and boost industrial growth. The Chinese central bank has already made these efforts. However, the results are disappointing.

The point to take home here is that economic slowdown currently is not just a supply side issue. Overall uncertainty in global markets and slowdown in demand have had an impact on even the fastest growing economies. In China's case, lower demand for exported goods from the US and EU may have hurt. For India, the domestic consumption and investment growth have lagged the historical trend. Thus it will require more than quick fix liquidity solutions to revive the economies from economic slump.

04:30

In the meanwhile, the Indian stock markets are trading flat with a negative bias. At the time of writing, BSE Sensex was down by 3 points (0.02%). Stocks in the technology space have been the main losers. The other major Asian stock markets closed the day on a positive note with Hong Kong and Taiwan leading the gains. European markets have opened the day on a negative note.

04:55

Investing mantra

"You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets." - Peter Lynch

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28 Responses to "Do you wish to donate to BSNL etc....the Air India way?"

NagarajaApr 19, 2012

unless Govt.sheds all PSUs , get proper infrastructure in place, better basic amenities in place- and avoid political farcial hand-outs for election purpose, get rid of archiac laws like draconian land acquisition act, remove corruption and corrupt officials/ politicians, NOTHING good will happen in this country.

The PSUs you have referred to are essential for the country's progress in terms of infrastructure,employment as also the development and sustenance of ancillary industries and a bail out may sometimes be necessary.It should be done on a case by case basis and on a short term basis.

The loss making PSU should be closed down. What sort of assurance we have that pumping additional capital to Air India will turn round the business ? Air India is an example. What about other loss making PSU's ? Just to safe guard the existing work force and take care of the vested interest of the politicians and senior management, the tax payers money should not be wasted.

Business is not the business of the Governments. The business of the Governments is justice, law and order, essential services, administration and maintenance of proper records. Putting Public Money to bail out Air India and then Politicians are controlling the management is suicidal. Let the professionals be allowed to run the Air Lines with responsibility to bring it to profit shall be the right long term approach.

There cannot be jobs that are permanent, when the life itself is temporary. Where is the question of job-security for few lakh of employees, where millions are without any job. Remove the so-called 'job-security' through cadre services from governmental and public sector services. India will shine.

PSU s are called as Ram Bharvasa Hindu hotal it is run by government-see who is in the government- It is mixed with bureaucrats and maximum corrupted politicians with multiple parties. These all parties and for all personals want to swel their pocket. From where to bring the huge funds so they will find out the way to earn from the back door so it is not easy to make profit. All malayees will go through back door.See a simple thing in the past day while geting the telephone connection party to pay a Rs 3000,5000 even 10000+ some times where the money has goneis they refund any interest of payment for the depositsanother thing if a telephone instrument is faulty they never replace with a new one they will bring another old one no use of any complaint and rental charges are highthe BSNL department may showing huge purchase amount. So no doubt PSUs will go on loss.

You are to some extent is right but before forming any opinion following may be kept in mind.

There may be inefficiency and lot of scope of improvement in PSUs. But earning does depend on way of working and honesty / code of operation which PSUs are bound to follow. Like in mentioned case of BSNL / MTNL, one has to look at the reach irrespective of profitability, activation certain services on chargeable basis without consent of subscriber, wrong billing etc. No wonder private players earning heavily and PSUs are in red.

Do you seriously think that any sane person will agree to the various bail-outs by GOI? But, our system has rendered us eunuchs, they know it and HENCE, they don't care about our opinions. In Gujarati, they have a saying - JENO RAJA VYAPARI, TENI PRAJA BHIKHARI, meaning if the King involves in business, the citizens will be poor.

Excellent!!!
The intent of the artcile: "government has decided to rescue it with our tax money... But is this what we pay tax for?" is well conveyed. The views on wider question of what is correct, is aptly conveyed in comments above.

Supreme Court is already being questioned with clarifications request by President for meddling with execution decicions (2G)... Privite corporates cannot be trusted with Social welfare, due to profit motive... Professionalism at all points cannot be trusted to bring balance at all levels...People cannot be trusted to elect their best representative...Dictactor ship, Communism or Captialism have been repeatdly proven to fail to deliver results...

Since there is no one solution, I HASTEN TO CONCLUDE is the apt conculsion for keeping the candle light burning in strong winds...

Instead of bailing out PSUs government should find out a comprehensive plan to privatise these entities by selling to investors, Indian or foreign, who are willing to turn them around and extend help to these private investors in the form of legislation or otherwise. Government will have to find ways to protect interest of the employees of this bloated companies which could be main drain on them, as well as some social interest to be protected like servicing unprofitable routes.

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